Supply chain · 18 April 2017

Rising food and fuel costs put key UK sectors under pressure

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Fuel prices are contributing to the financial turmoil of more small firms

A growing proportion of businesses in key areas of Britain’s supply chain are showing “significant” levels of financial distress as cost pressures mount, new statistics have shown.

Across key sectors of the UK supply chain, levels of significant financial distress – a state of financial ill health that can lead to bankruptcy – have risen by 26 per cent on average over the last 12 months, with expensive food and fuel costs acting as major contributors.

A report, from business recovery firm Begbies Traynor, found that in the first three months of 2017, the UK transportation and logistics sector experienced the largest increase in significant financial distress of any UK sector, up 46 per cent year-on-year.

The proportion of businesses in significant levels of financial distress in UK wholesale increased by 16 per cent, while those in food and beverage manufacturing increased by 15 per cent.

Transport costs were cited as the fastest growing cost to small business owners in the study, having increased by 6.6 per cent over the last 12 months. UK inflation, currently set at 2.3 per cent – its highest level for four years – is has been a major cause of the cost increases.

According to Julie Palmer, a partner with Begbies Traynor, the statistics may cause worry among business leaders in the worst hit areas of the UK supply chain.

“Levels of financial distress have increased significantly over the past year, and nowhere more so than in the transportation and logistics sector, which continues to be severely hit by ongoing fuel price inflation,” she added.

With a relatively high reliance on lower paid temporary or contracted work, companies in sectors like transport or wholesale are also likely to be affected by further costs associated with the introduction of the National Living Wage on 1 April this year.

Palmer added: “Once those costs ultimately feed through to consumers, we’d expect further pressure on sectors exposed to discretionary spending such as retail, bars and restaurants, travel and leisure.

“Given the scale of the increases in distress [in 2017], it would appear that food suppliers, logistics firms and wholesalers are yet to fully pass on these rising costs to their customers. But it is only a matter of time before we start to see this coming through.”

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ABOUT THE EXPERT

Fred Heritage is deputy editor at Business Advice. He has a BA in politics and international relations from the University of Kent and an MA in international conflict from Kings College London. He previously worked as a reporter at Global Trade Review magazine.

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